Voss Value Funds: United Parks & Resorts ($PRKS) Investment Case – Q2 2024
Voss Capital presents an in-depth analysis of $PRKS (formerly SeaWorld), a new core long position in their portfolio.
Despite the current negative sentiment surrounding theme park operators and concerns about consumer spending, Voss sees $PRKS as a compelling opportunity with significant upside potential.
Voss argues that the market is misinterpreting the company’s prospects, creating an attractive entry point for investors. They believe PRKS offers a combination of operational resilience, strategic opportunities, and potential for multiple expansion that could lead to substantial returns.
Key to their bullish thesis are:
- $PRKS’s historical resilience during economic downturns
- Ongoing operational improvements and margin expansion
- Potential for strategic corporate actions, including possible take-private scenarios
- Current valuation significantly below historical averages and transaction comparables
Voss Capital’s base case projects an 80% upside over two years, with potential for even greater returns in their bull case scenario. This optimistic outlook is underpinned by their confidence in $PRKS’s differentiated market position, valuable real estate assets, and multiple avenues for growth.
Business Overview
- $PRKS owns and operates 12 theme parks under seven different banners across five states.
- Key brands include SeaWorld, Busch Gardens, Discovery Cove, Sesame Place, Adventure Island, and Aquatica.
- About 60% of revenue is generated in Florida, 16% in California, and 13% in Virginia.
- Revenue split: ~55% from admission tickets (40% from season ticket holders), ~45% from in-park spending.
Market Position
- Strong presence in markets with employment growth above the national average.
- Differentiated theme park experience focused on animal content and educational shows, complementing fantasy-oriented competitors.
- SeaWorld Orlando routinely voted as Best Theme Park in America by various reader’s choice awards.
Competitive Advantages
- Value Proposition: Compelling entertainment option during economic downturns compared to alternatives.
- Regional Focus: Attendance driven more by local residents, providing economic resilience.
- Distinct Experience: Animal-oriented content differentiates from media-driven competitors like Disney or Universal.
- Real Estate Ownership: Owns nearly all land underlying their parks, totaling about 2,000 acres.
Growth Runway
- Margin Improvement: EBITDA margins improved from 29.2% in 2018 to 41.3% on a TTM basis.
- Unutilized Land: 400 acres of excess land adjacent to parks under review for value creation.
- Licensing Model: Potential for replication of high-margin, capital-light Abu Dhabi SeaWorld model.
- Strategic Corporate Actions: Potential for take-private deals or transformative acquisitions.
Market Dynamics and Opportunities
- Theme park operators currently out of favor, offering potential value opportunity.
- Historically resilient through economic downturns (EBITDA held relatively flat in past recessions).
- Relative bargain compared to Disney and Universal post-Covid price hikes.
- Potential synergies with Merlin Entertainment (owned by Blackstone) in key markets.
Valuation and Expected Returns
- Current valuation: ~6.8x 2025 EBITDA (vs. 5-year pre-Covid average of double-digit multiples).
- Transaction comps median: ~11.0x EBITDA over the last couple of decades.
- Base case price target: $88/share (+80% upside over two years) at 8.7x EBITDA (15.0x P/E).
- Bull case: Potential multi-bagger returns with attendance recovery and margin improvement.
- Bear case: Mid $30’s per share based on trough multiples and earnings.
Key Risks
- Significant theme park expansions by competitors (Disney, Universal, Cedar Fair).
- Stagnant long-term attendance trends industry-wide.
- Potential margin pressure if unable to sustain recent improvements.
Conclusion Voss Capital sees $PRKS as an undervalued opportunity with multiple potential catalysts for value realization, including operational improvements, strategic corporate actions, and eventual market re-rating.
Click here for the full pro investor letter.
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